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    • Ronson J. Shamoun, ESQ., LL.M.
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  • About
    • Ronson J. Shamoun, ESQ., LL.M.
    • Chandara Diep, ESQ., LL.M.
    • Joseph Cole, ESQ., LL.M.
    • Devon J. Arabo, ESQ., LL.M.
    • Lauren Suarez, ESQ., LL.M.
    • Daniel Huynh, Esq., LL.M.
    • Christopher Engelmann, ESQ., LL.M.
    • Leslie Miranda, Esq., LL.M.
    • Brian M. Malloy, Esq.
    • Steve S. Mattia, Esq.
    • Sam Imandoust, ESQ., LL.M
    • Kaveh Imandoust, JD, MBT, CPA
    • Andrea Cisneros Valdez, Esq., LL.M.
    • Martin Schainbaum, ESQ., LL.M.
    • Dod Ghassemkhani, ESQ.
    • Vincent Renda, Esq.
    • Pedro Bernal, Esq.
    • Melanie M. Shamoun
    • Sandie Portilla
    • Renae Arabo
    • Sabri P. Shamoun
    • Hilary Dargavell
    • Lupita C. Torres
    • Jewell Cornejo
    • Kesia Belford
    • Remy Hogan
    • Judith Jeremie
    • Marley Smith-Peters
    • Melanie Chan
    • Tanner DeMera
    • Charles Ecker
    • Anna Gurr
    • Asia Smith
  • Practices
    • ERTC – Call Us Before It’s Too Late!
    • Tax
      • IRS TAX MATTERS
        • IRS Appeals
          • IRS Appeals Process
          • Contesting an IRS Levy
          • Why Retain RJS LAW for IRS Appeals
          • 4 Tips For Navigating The IRS Rapid Appeals Process
        • IRS AUDITS
          • IRS Correspondence Audits
          • What are IRS Field Audits?
          • Initial IRS Compliance Center Audits
          • IRS Office Audits
          • What happens in an IRS Audit?
          • Taxpayer Rights Under IRS Publication 1
          • IRS Warns Taxpayers About Scam
        • NOTICES
          • IRS Notices
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          • FTB Notices
          • Avisos en Español
        • IRS Collections
          • Avoiding and Eliminating IRS Tax Liens
          • Collection Due Process Hearing
          • CP 501 – IRS Notice
          • Failure to file a tax return: What happens?
          • How the IRS calculates interest
          • How to get a tax levy released
          • ACS – Automated Collection System
          • IRS Collections Process
          • IRS Interest Abatement
          • IRS Revenue Officers
          • Jeopardy Assessments and Jeopardy Levies
          • National Tax Agencies
          • RJS LAW Approach to Collections
          • IRS Statute of Limitations on Collections
          • Streamlined Installment Agreements
          • Tax Penalty Abatement
          • Taxpayer Assistance Orders
        • IRS Payroll Tax
          • Independent Contractor Reclassification Audits
          • IRS Forms 940 and 941
          • IRS Trust Fund Interviews
          • Payroll Tax Liability Payment Options
          • Trust Fund Recovery Penalties
        • IRS Wealth Squad
        • Offer in Compromise & Tax Settlements
          • OVERVIEW OF OFFER IN COMPROMISE PROCESS
          • The Offer in Compromise Process
          • Appealing an Offer in Compromise
          • How does the IRS evaluate an Offer in Compromise
          • Offer in Compromise and Dissipated Assets
          • Offer in Compromise Requirements
          • Pros and Cons of an Offer in Compromise
          • Why Choose RJS LAW?
          • Offer in Compromise Alternatives
          • Actual IRS Offer in Compromise Results
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          • EDD Investigations
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        • Criminal Investigation Division
        • IRS Criminal Investigation Division Tactics
        • Criminal Tax Defense – Tax Crimes
        • Currency Transaction Records & Suspicious Activity Reports
        • IRS Methods of Proof: Tax Fraud and Evasion
        • Methods IRS Agents Use to Locate Assets
        • IRS Special Agent Visits
        • Are You a Criminal Investigation Target?
        • Criminal Tax Attorney vs. White Collar Defense
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      • Landlord Tenant Law
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  • Tax Institute
    • 8th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 28th, 2023
    • 7th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 15th 2022
    • 6th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 5th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 4th Annual USD School of Law – RJS LAW Tax Controversy Institute
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California Residency Tax Issues – Mr. Buehler Did Not Get a Day Off

California Residency Tax Issues - California Office of Tax Appeals (OTA)

California Residency Tax Issues

The recent California Office of Tax Appeals (OTA) decision in the Buehler case highlights some of the California residency tax issues a California resident (or nonresident) may face when they have business interests or property inside and outside of California. Buehler involved a taxpayer who resided in California but held an interest in a Massachusetts based partnership. Unlike Ferris Buehler who was able to artfully dodge his way out of trouble while playing truant from school, the Buehlers in the OTA case were not so lucky. The Taxpayers in the OTA case ended up getting double taxed by both the state of California and state of Massachusetts when they sold off their partnership interests. (I may be remiss by failing to mention one of the Taxpayers passed away during their tax dispute as well.)


The California Revenue and Taxation code places a tax on all income a California resident earns, regardless of whether the income is sourced within California. California residents who have business activities in other states like rental properties or businesses generally must pay California income tax on the income they earn on those out-of-state business activities. Depending on applicable state tax laws of the states in which they operate, California residents may also have to pay state income taxes to those states. In the Buehler case, the taxpayer had to pay California income tax on the sale of his partnership interests because he was a California resident. He presumably needed to pay Massachusetts income tax as well.
California residents may be protected from double state taxation as the California Revenue and Taxation Code allows California taxpayers, in some circumstances, to claim credits for taxes paid to other states. For example, a California resident sells a house located in Massachusetts. The taxpayer owes and subsequently pays the state of Massachusetts $1,000 of Massachusetts state income tax due from the sale of the house. The California resident will have to pay income tax on the sale of the Massachusetts house, but the California resident may claim a $1,000 credit against the California income tax owed (i.e., taxpayer lower their California tax bill by up to $1,000 because of the Massachusetts credit claimed). However, there are limitations on the credit a California resident can claim as the Taxpayers in Buehler found out.

One limitation on the California credit is the income must be sourced outside of California. Generally, ownership interests in businesses like partnership units or shares of a corporation are sourced to the state the business owner resides. If you are a California resident and own shares of the Abe Frohman Sausage Corporation which is incorporated in Delaware but headquartered in Illinois, for tax purposes, your corporate shares will be sourced within the state of California for California. Even though the partnership in the Buehler case had business activity within the state of Massachusetts, the Office of Tax Appeal found the Taxpayers’ interest in the partnership was sourced in California because that is where the Taxpayers resided. The Taxpayers in Buehler were not able to claim a tax credit for the Massachusetts taxes they paid because their income from the partnership was not sourced to Massachusetts.

This can be problematic as different states jealously eye tax revenue like a 1961 Ferrari with only 126 miles on the odometer. States like Massachusetts may look to tax California residents’ income which may not qualify for the credit. This can lead to double state taxation for the unaware.
The tax laws of California and other states are a complex web which people who live, work, or invest in two or more states must navigate.

At RJS LAW, we help clients with tax planning advice as well as representation on residency audits and other state tax matters. For a free consultation please call our firm at 619-595-1655 or contact us the web with your state (or federal) tax questions.

Written by Joseph Cole, Esq., LL.M.

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